Moshe Milevsky on Annuity Market Reform

Moshe Milevsky is one of the leading figures in the annuity industry.

He is an Associate Professor of Finance at the Schulich School of Business in Toronto.  Professor Milevsky always seems generous with his time and ideas--his writing and research reach wide popular, academic and industry audiences.

Professor Milevsky suggests that recent financial market dislocations provide the annuity industry with a golden opportunity to retool its thinking and products in order to fulfill consumer needs that have not been effectively addressed by the financial community.  

In a recent article, Professor Milevsky proposes five structural changes to the annuity business, or what he often refers to as the "personal pension" business:

  1. Product Allocation: all individuals should have some portion of their assets allocated to annuities.  The question is not whether to allocate to annuities, but how much and what type of annuity.
  2. Variable annuity providers should offer a full menu of global and passively managed (i.e. inexpensive) equity subaccounts.
  3. Simplify variable annuities by disentangling living benefits and death benefits.
  4. Standalone Living Benefits: Companies should provide simple and efficient insurance protection for sequence of returns risk by offering more products that are analogous to standalone living benefits.
  5. Credit Risk: Insurance companies should form syndicates in order to spread risk and more effectively support the long-term guarantees they are providing.

Source: Research Magazine

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Great point.

Complicated topic for sure, but spot-on with the mortgage stuff.

With insurance and annuities (and mortgages), it depends how things are structured and what incentives exist.

Overall, though, better to be close to the risk assumed and have as much skin in the game as possible.